Morningstar: HSBC vs Schroders in Asian bond funds

The Asian bond market continues to deepen, supported by local and international interest.

Asian bond markets were resilient through 2025, supported by abundant regional liquidity that began to build during the year and set the stage for 2026, despite ongoing uncertainties around global growth and monetary policy. Across the region, the combination of global policy easing in 2025 and strong regional savings supported spreads and funding conditions. Key players like China and India stood out once again. China’s bond activity was anchored by sustained onshore government and policy‑bank supply alongside steady offshore refinancing. India’s bond markets also enjoyed strong activity in the primary market in 2025, reflecting deepening local and international participation.

We take a closer look at two analyst-rated funds in the Morningstar Category Asia Bond: HSBC Asia Bond and Schroder Asian Bond Absolute Return.

People

An experienced and long-tenured leadership team at HSBC supports the strategy’s Above Average People Pillar rating. The strategy is led by Ming Leap, who assumed responsibility in November 2021 and brings two decades of experience, mainly in rates and currencies. His risk‑conscious style underpins the strategy’s conservative profile. He is supported by Alfred Mui, a veteran at HSBC and head of Asian fixed income, who has been a key decision-maker since 2011 and provides continuity and risk oversight. Alex Choi, formerly a credit analyst, became comanager in January 2024, contributing to the high‑yield selection. The eight‑member credit analyst team averages fifteen years of experience, and the turnover that peaked in 2021 and 2022 has stabilized since.

Head of Asia macro and co‑lead manager Julia Ho, one of Asia’s most seasoned macro investors, left Schroders in February 2026, leading us to downgrade the People Pillar rating from Above Average to Average. At that time, Chow Yang Ang, a 26‑year veteran and co‑lead since 2018, stepped into the sole‑lead role. He brings a strong track record, though he now faces the challenge of filling the gap left by Ho’s complementary skill set. Additional strain from the 2025 departure of macro analyst Vikram Mathur remains, but Ang can still draw on an eight‑member Asian credit team led by Peng Fong Ng. After Ho’s formal exit, the Asian macro and credit teams will be combined under Ng to form an Asia fixed‑income unit to enhance efficiency.

Process

This HSBC strategy follows a conservative, benchmark‑aware process anchored to the Markit iBoxx Asian USD Bond Index. It emphasizes investment‑grade Asian USD credit with modest high‑yield and limited local‑currency exposure. Macro views are formed by the fixed‑income team, risk is allocated across factors, and issuer selection is analyst‑driven. Historical challenges, especially missteps in the China property sector, prompted enhancements including a five‑tier issuer risk classification and more rigorous scenario analysis. Overall, the approach remains conservative relative to peers and earns an Average rating.

On the other hand, Schroders maintains an unconstrained, total‑return approach, with flexibility across Asian rates, currency, and credit. Duration can range from minus two to plus nine years, and Asian currency exposure from 0 to 50 percent; credit allocation generally spans 20 to 60 percent, with a 50 percent high‑yield cap. The process combines top‑down and bottom‑up research, enhanced by scorecards guiding risk budgeting and security selection. Currency positioning has recently been a weaker area, and Ang plans to increase focus on technical factors such as sentiment, flows and liquidity. Its Process rating remains Above Average.

Portfolio

The HSBC strategy embodies a risk-aware approach. For example, high‑yield exposure is typically kept close to that of its benchmark but at the low end of the peer group; 11 percent during 2022’s volatility, versus 15 to 30 percent for peers. When more constructive, allocations rise moderately (around 20 to 25 percent in 2024) but remain concentrated in higher BB‑rated names. Following China property sector difficulties, weaker developers were reduced sharply from early 2023 onwards. Portfolio tilts since 2023 include India (renewables and financials) and Indonesia (commodity corporates). Duration stays within one year of the benchmark’s but is structurally longer than most peers, creating above‑average rate sensitivity.

Schroders’ portfolio positioning is more dynamic. For example, duration reached 7.5 years in 2020 during pandemic easing, then stayed mostly between three and four years from 2022 to 2024 amid global rate volatility, before rising to four and five years in 2025 anticipating Asian central bank cuts. Credit exposure fell from 40 to 31 percent in 2022 due to caution around rate hikes, geopolitical risks, and China property concerns, then rebuilt to 35 percent by December 2025. Asian currency exposure ranged from nearly 40 percent in early 2022 to 4 percent in October 2022, later rebounding to 12 percent by end‑2025.

Performance

The HSBC fund has historically been resilient in risk‑off markets, but underperformed peers during the 2021/22 downturn due to heavier China property exposure and weak credit selection. Despite a high‑quality tilt keeping volatility lower than peers, returns in 2024 lagged because high‑yield rallied strongly and the fund’s longer duration detracted as US Treasury yields rose. In early 2025, performance held up relatively well during tariff‑driven volatility but was hurt by a mistimed exit from New World Development, whose bond prices later rebounded.

The Schroders fund has also delivered strong absolute and risk‑adjusted returns, beating the Morningstar Asia USD Broad Market Index and peers with lower volatility over the medium to longer term. It showed robust downside protection; losing only 4 percent in 2022 versus peers’ 13 percent, and excelled in periods where active duration and currency calls added value, such as 2020’s rally. It tends to lag more credit‑heavy peers in strong credit markets (such as 2019), a structural feature of its diversified risk drivers. The managers’ ability to dial up and down risks has had some mixed results recently, with stumbles in 2024 and 2025. Future performance will depend heavily on Ang’s ability to sustain its historically effective dynamic approach in the post‑Ho’s era.

Jeana Marie Doubell is investment analyst fixed income EMEA at Morningstar. Morningstar is a member of Investment Officer’s Expert Panel.